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Those writing Posta’s obituary are dead wrong, says postmaster general

By Wainaina Wambu and Frankline Sunday | October 20th 2020
Post master General and Chief Executive officer Dan Kagwe.

That Dan Kagwe, Kenya’s postmaster general, is an optimist is not in doubt.

In 2016, he assertively said the Postal Corporation of Kenya (PCK) would return to profitability in three years.

However, this did not happen; instead, PCK’s performance has continued to unravel frightfully.

But this has not shaken Kagwe’s optimism and faith in the parastatal.

“Somebody asked me last week when are the meetings for the funeral ... we ain’t going anywhere. We are looking at increasing post offices, not reducing them,” he said recently.

In the past 10 years, PCK has seen annual revenues shrink from a peak of Sh13.9 billion in 2008 to being in the red.

A special audit report from the Auditor General declared the parastatal technically insolvent, with Sh5.3 billion in current liabilities against Sh1.5 billion in current assets.

When Financial Standard reminded Kagwe of his promise four years ago that the State entity would have turned a profit by now, he responded: “Unprecedented things like Covid-19 happen.”

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He noted that the pandemic had affected plans like full automation to help reduce pilferage and the rolling out money transfer services.

“At that point, we were looking at a bright future but never imagined things like the pandemic would come and hold us back,” said Kagwe, promising to arrange a sit-down to review the numbers. The interview has yet to happen.

Monopoly licence

But PCK still has three years to prove it can return to profitability before its monopoly policy expires.

In July 2023, it will mark 25 years since it was granted sole licence to operate public and nationwide postal services. This means its monopoly mandate to rent out letterboxes, sell postage stamps and convey letters of up to 350 grammes will be up for review.

This time, however, the odds are stacked against the ailing parastatal and for the first time, the country could see part of the postal system officially taken up by the private sector.

As the crucial date approaches, the government remains noncommittal on whether or not the licence issued under the Postal Corporation of Kenya Act, 1998 will be renewed.

“The question of extending the mandate is a policy decision and as such, it rests on the government when that time will come,” said Matano Ndaro, the director responsible for competition, tariffs and market analysis at the Communications Authority of Kenya (CA).

He was speaking a week ago during an event to mark the World Post Day, where PCK and CA fielded questions from the media.

Mounting debts and operating costs place PCK in a difficult position to execute a turnaround.

Kagwe, angry at the use of words like “ailing” in reference to PCK, seeks to paint a picture of resilience, saying the parastatal’s long history will guarantee longevity in the market despite competition from technology.

“For more than 145 years we have been in operation. PCK has always sustained its own operations without a bailout from the government,” said Kagwe.

“The situation brought about by Covid-19 is unprecedented because our operations have stalled. Even during the middle of the pandemic, we were moving four million local items per month, and with the lifting of international flights in August, this increased to 25 million items.”

However, the pandemic is just one of the challenges threatening the survival of the State corporation.

According to data from the Kenya National Bureau of Statistics (KNBS), 38 of the country’s 623 post offices have closed between 2017 and 2019.

These range from those in high-traffic areas like Kangundo, Kagio, Kikambala, Kithimani, Siaya, Narok and Rongai, to structures long boarded up in Nairobi West and Kajiado.

Further, PCK is among leading parastatals when it comes to the number of prime assets under its portfolio. The corporation holds at least Sh8 billion in property, plant and equipment spread across the country.

This has raised concerns that a lack of proper accountability could see these assets pilfered as they remain dormant.

Kagwe, however, said the corporation did not close the said branches.

Instead, he said, PCK has sublet some of its premises to private operators to save on operational costs.

“We did not close those branches but signed licence postal outlets agreements with operators,” he explained in an interview.

“This also gives Kenyans an opportunity to run post offices in a kind of franchise model and gives us more reach.”

Still, PCK’s inability to break even and the erosion of its universal mandate hurts its chances of having its monopoly licence renewed.

Already, since April, the Treasury has released more than Sh800 million in bailout funds to enable the corporation pay employee salaries.

At the same time, the establishment of new institutions that work alongside the mandate of PCK weakens the case for granting it the monopoly to deliver letters. For instance, there is the Universal Service Fund (USF), the kitty under CA that holds up to Sh9 billion to be used in the roll-out of network infrastructure in underserved areas.

USF is using these resources to establish high-speed fibre connectivity in public schools and government buildings like hospitals and county assemblies. This means tha t soon, the majority of the public sector, which constitutes a big portion of PCK’s market, will take its operations online.

CA has said it is working to accelerate this digitisation by putting in place the appropriate infrastructure.

“We are currently working on the National Addressing System that will have all residential and commercial buildings labelled and entered into the digital grid, which is crucial for the development of e-commerce,” said CA’s Ndaro.

“This is a massive project with a cost of more than Sh24 billion over five years, and we are accelerating this because of what we’ve gone through this year and the last two years,” he added. 

Mail forms the core business of PCK, contributing about 70 per cent of its total revenue. The main revenue earners are private letterboxes and bags – the mode of delivery of mail to Kenyans from which PCK charges an annual fee. 

And in a world where people want the convenience of things being delivered to their doorsteps, PCK sees its future. 

Kagwe said e-commerce is how the corporation will stay afloat, trading on the advantage of its having a broad footprint across the country. 

“We used to be a monopoly. When you are a monopoly, you sit and wait for people to walk in. But when you’re in competition, you get out and get clients,” said Kagwe.

Last-mile connectivity

In e-commerce, he said, the biggest opportunity for the parastatal is logistics due to its network that enables it to deliver to all corners of the country. 

“We have to have a system that is local, that drives our own e-commerce, and one single company is represented at every single point in the country.”

Kagwe added that Posta has a universal service obligation that ensures access to postal services in all areas of the country. This, he noted, is the aggregator for private firms that don’t view last-mile connectivity as making business sense. 

“While it may not be commercially viable to take only one pen to Elwak, it’s our responsibility as the post office on universal service obligation, for which no other company is mandated, for us to serve,” he said. 

Posta is also looking at other revenue opportunities. It has been working towards implementation of a national payment gateway system. 

Government cash transfers are also soon to be reverted to PCK as part of efforts to sustain it financially

The role had been removed from PCK owing to inefficiencies and delays to access the money by those under government safety nets, such as the elderly, orphans and vulnerable children. 

The regulator, CA, also believes Posta needs to take back its rightful place as a government clearing and forwarding agency and national financial services provider.

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